Roger Montgomery

One early theme that has emerged is the deterioration in future conditions for consumers as expressed by the Commonwealth Bank of Australia (ASX:CBA), AGL Energy (ASX:AGL) and Mirvac Group (ASX:MGR) results. Having mentioned it yesterday on the ABC’s NSW Statewide Drive program with Fiona Wyllie, it makes sense to discuss it here.

The media is bringing us daily reports of government reviews, proposed policies and regulations for the financial services, energy and health sectors. Depending on what gets decided, the new regulatory landscape could have big repercussions for a number of major Australian businesses.

I have just had a few very stimulating days at the Byron Writers Festival, and was blown away by the panel discussion on Artificial Intelligence (AI), entitled “The Role of Humans in the Technological Age”. 

The current bull market is only months away from becoming the longest in modern history, in fact if the market holds together through to September 2018, we will have crossed that mark. As we approach this “milestone” we thought it would be useful to reflect on the some of the other 11 bull markets that have occurred since WWII, paying particular attention to 6 of them, and importantly what was perceived to have caused their demise.

Part of helping manage a portfolio of global stocks involves staying on top of global trends, and determining whether there are ways to profit from any themes that emerge (either on the long or short side). One interesting theme the global team has observed is how Americans are increasingly drinking alcoholic beverages other than beer.

When navigating global equity markets, it helps to align one’s sails to the major tailwinds of growth. We have written about the advantages of investing with tailwinds on numerous occasions in the past (most notably here), and in summary: businesses in industries that are growing naturally will typically find it much easier to grow revenues, expand profit margins and ultimately earn higher returns on capital investment.

The worsening drought in Eastern Australia is resulting in increasingly difficult conditions for businesses right across the agriculture sector. And if official weather forecasts hold firm, it looks like things will be tough for some time to come.

I’ve seen fund managers criticised for holding cash by investors who think a fund should always be fully invested. But at Montgomery we take a different approach. We believe holding cash, particularly when markets are frothy, gives us greater scope to buy stocks we like when markets eventually pull back.

The U.S. yield curve (10s2s spread) is only 25 basis points away from inverting, an event which occurs when short term rates (2 year U.S. treasuries) exceed long term rates (10 year U.S. treasuries).

Recency bias – that is, the tendency to overweight recent events – is a pernicious cognitive bias when investing. Being mindful of the effects of recency bias is the first step to enabling better decision making in the stock market, particularly during periods of heightened volatility.

Last week Italy’s most successful football club, Juventus, announced a deal for one of the world’s greatest players, Cristiano Ronaldo. The price tag that Ronaldo’s former club Real Madrid pinned to the Portuguese superstar? €100 million. But after a quick look at the economics of soccer it becomes clear that Ronaldo might be worth nothing at all.

Today, Australian shoppers are participating in one of the largest shopping events in the world – Amazon Prime Day. Whether the event can help restore Australians’ faith in the Amazon brand remains to be seen, but what we can say for certain is that Prime Day will be as lucrative for Amazon’s nascent advertising business as it is for its retail business.

Famous for creating the concept of online daily-deals back in 2008, Groupon was one of the earlier tech start-ups to reach “unicorn” status (valuation of $1 billion or more) with its launch timing ironically perfect, in the midst of the 2008/2009 financial crisis and impending U.S. recession.

If you want exposure to the best and biggest brands across all sectors then you need to invest globally. With data from Forbes and imagery courtesy of Visual Capitalist, today’s fun chart below shows the world’s 100 most valuable brands, worth over $2 trillion in aggregate.

The U.S. pharmacy industry however has done just this, with online (including mail-order) prescriptions undergoing a staggering 33 per cent decrease in market share, falling from 16 per cent of the market in 2009 to just 12 per cent in 2017, with brick-and-mortar taking the difference. Meanwhile in general retail (apparel, shoes, electronics, etc) the trend has been the diametric opposite, with online having increased its market share by ~250 per cent over the same period.

While you may not follow movements in the bank bill swap rate (BBSW), right now they are worth paying attention to. You see, rates are on the rise. And that means the funding costs for our major banks are also going up. This could force them to raise mortgage rates – and take mortgage stress to another level.

In this week’s video insight Roger discusses how ultra-low interest rates for an extended period – through quantitative easing – has seen unprecedented debt accumulate globally that is not being invested in growth.

The recent flare-up in trade tensions between the US and China has caused some of the global technology giants to temporarily lose their lustre, and none more so than Alibaba (NYSE: BABA), which is down more than 12 per cent from its mid-June highs.

As we are all well aware, central banks have been, through quantitative easing, suppressing interest rates since the GFC. Consequently, monetary policy has fueled unprecedented flows of institutional and private capital into real estate, private equity and stocks.

As Fiscal 2018 has drawn to a close, let’s take a closer look at the financial year that was. Excluding dividends, the Australian All Ordinaries Index was up 9.1 per cent to 6,290, and much of this gain took place in the December 2017 half-year.

If you’re looking for a dose of optimism, then head to the recent interview on CNBC with billionaire hedge fund pioneer, Julian Robertson. Robertson says he’s still bullish on this market, and he’s particularly keen on leading tech stocks like Facebook, Google and Microsoft.

In this week’s video insight Stuart discusses why the banks are selling or demerging lower return overseas operations and insurance operations.

Imagine you had a jar of jelly beans and you asked a large group of people to write down their estimate for the quantity of beans in the jar. What you would find is that, upon taking the average of everyone’s guesses, you arrive at a remarkably accurate estimate. Often, the accuracy of the average is higher than any individual estimate. How is this so?

We recently met Frank and Vanessa, two hypothetical investors in global equities but with very different performance over a two-decade time frame. Frank turned a million dollars into $4 million, but in the same time Vanessa’s account grew to $11 million – all by avoiding the handful of down years in global equity markets from 1997 to 2017. So how can you limit the downturns when investing in global equities?

In round one of what appears to be a deepening trade war between China and the US, the battle is on artificial intelligence, quantum computing, 5G wireless applications and genomics. President Trump has unveiled 25 per cent tariffs on $50 billion of Chinese imports and has also asked the US Trade Representative to identify an additional $200 billion worth of Chinese goods for tariffs of 10 per cent. 

Australia has more than 257 trillion cubic feet (TCF) of gas resources and 885 TCF in prospective resources.* And we’ll soon be the largest gas exporter in the world.  But, somewhat shockingly, new gas import terminals are about to be built on our east coast to cut the price of gas. I hate to be a doomsayer, but I don’t think this is going to work.

Accounting rules allow considerable scope for company management teams to nudge earnings in a particular direction (typically upward!). With this in mind, it is interesting that that U.S. federal prosecutors are investigating firms that had a notable absence of the number “4” in their reported financials.

Cochlear (ASX:COH) is one of Australia’s shining examples of technical adroitness and export attractiveness, an example to entrepreneurs of what can be achieved in Australia despite punitive wages and regulation.

The size of the corporate bond market has grown extraordinarily subsequent to the 2008 / 2009 financial crisis, adding ~$4.5 trillion worth of Investment Grade (BBB rated and above) and High Yield debt (BB rated and below) representing an increase of ~150%. Of particular note is the split between BBB (lowest rated Investment Grade debt) and High Yield (junk rated debt). From the chart below it is clear to see there has been an explosion in BBB paper (Investment Grade) largely driven by unprecedented stimulus from central banks, falling credit standards by rating agencies and the market’s relentless search for yield.

In this video, Chris discusses how we are buying stocks in this bull market, with today’s bull market run in the S&P closing in on 10 years. So far, this bull market ranks number two in length, behind the expansion of the 1990s.

The relentless pace of technological disruption shows no signs of abating.  The latest major disruptor is 3D printing, which looks set to revolutionise the way we make almost everything – from cars to houses, and even human body parts.